5 Dividend Stocks for Anxious Investors
For income-oriented investors, especially those seeking to bolster their portfolios with high-yielding stocks that also have the resources to maintain or even augment their dividend payouts going forwards, five stocks in particular stand out right now, according to Barron’s. These are: semiconductor manufacturer Texas Instruments Inc. (TXN); drugstore chain CVS Health Corp. (CVS); regional bank PNC Financial Services Group Inc. (PNC); food service supplier Sysco Corp. (SYY); and medical device maker Medtronic PLC (MDT).
Barron’s utilized research by Reality Shares Inc., an investment management firm and ETF sponsor in San Diego that focuses on identifying stocks with the potential to increase their dividends over the long term. Reality Shares uses seven principal criteria to evaluate stocks, including forecast payout growth, the ratio of free cash flow to dividends, and the ratio of share repurchases to dividends. The latter measure indicates whether the company could raise dividends by reducing share buybacks. (For more, see also: Bull or Bear, 5 Stocks With Rising Dividends.)
From 900 companies analyzed by Reality Shares, Barron’s took those with the firm’s top dividend safety rating which also have market caps or at least $ 25 billion and dividend yields of at least 2%. The five stocks listed above passed all these tests. Barron’s analysis of each follows.
Texas Instruments is the leading analog chipmaker, with rising sales for automotive and industrial applications. EPS has been growing at double-digit annual rates in recent years, with an 18% increase projected for full year 2017. The company has strong cash flow and has a history of using it to fund dividend increases and share repurchases. Analysts project that the dividend per share, currently $ 2.00, will rise to $ 2.21 in 2018. (For more, see also: Gartner Raises 2017 Semiconductor Market Outlook.)
CVS has issued earnings warnings, and the consensus EPS estimate for 2017 is $ 5.88, only 0.7% above its figure of $ 5.84 in 2016. The chief danger is that CVS may lose more than 40 million retail prescriptions to competitors, as health insurers forge more restrictive networks. Nonetheless, the company still has strong cash flow, up 25% in 2016, rising to $ 8.1 billion from $ 6.5 billion in 2015. Moreover, CVS’ dividend payout is only 30% of net income, giving the dividend a large margin of safety.
Pittsburgh-based PNC has a large stake in asset management firm BlackRock Inc. (BLK). EPS is forecast to rise 15% this year, from $ 7.30 in 2015 to $ 8.38 in 2017. The current annual dividend of $ 3.00 is expected to jump to $ 3.18 in 2018.
Sysco’s current dividend of $ 1.32 is expected to rise marginally, to $ 1.36 in 2018. Higher fuel costs, increased wages, and online competition are worries, but EPS is projected to increase 18% (from $ 2.34 to $ 2.76) in the current fiscal year, which ends June 30, 2018. Cash flow rose 10%, to $ 1.6 billion, in fiscal 2017.
After acquiring Ireland’s Covidien in 2015, Medtronic cut its tax rate by shifting its own domicile to Ireland. The company has room to reduce costs, and EPS for fiscal 2018, ending on April 30, is expected to be $ 4.78, up 4% from $ 4.60 last year. Medtronic has increased its dividend at an annualized rate of 24.2% during the past three years, according to Dividend.com. Barron’s projects an 8% increase in 2018.
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